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Saudi Arabia's sovereign wealth fund is the mystery funder that has offered to finance a deal to take Tesla private, Elon Musk wrote in a Monday morning blog post. The post lays to rest a mystery that has bedeviled Wall Street and the news media since Musk tweeted last Tuesday that he had "funding secured" for a buyout.

"Going back almost two years, the Saudi Arabian sovereign wealth fund has approached me multiple times about taking Tesla private," Musk wrote in his Monday post. "They first met with me at the beginning of 2017 to express this interest because of the important need to diversify away from oil."

Further Reading

In late July, the Saudis purchased almost five percent of Tesla's stock (acquiring more than five percent would have triggered public disclosure requirements). They then met with Musk on July 31 and reiterated their interest in funding a buyout.

"I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed," Musk said. He then met with Tesla's board and told them he was interested in taking Tesla private.

The next step, Musk said, was to approach Tesla's largest shareholders to see if they would be interested in continuing to hold shares in the new, private incarnation of Tesla. But he thought that all shareholders deserved to know about the proposal at the same time—hence his Tuesday tweet announcing his plan to go private.

Discussions to continue in the coming weeks

Still, Musk isn't ready to sign on the dotted line with the Saudis yet. "I am having discussions with a number of other investors, which is something that I always planned to do since I would like for Tesla to continue to have a broad investor base," Musk wrote.

Musk also noted that this will not be a leveraged buyout, where the acquisition is largely funded by borrowing money that would have to be paid off by Tesla later. Instead, the Saudis (or whoever ultimately funds the deal) will buy shares from existing shareholders who want to cash out—these funders would then become some of Tesla's biggest shareholders.

A total buyout of Tesla would cost more than $70 billion. But Musk says he's hoping that many of Tesla's major shareholders will choose to remain as shareholders in the new, private company. That would reduce the amount of cash required, since funding would only be needed to buy out shareholders who wanted to cash out.

Further Reading

"My best estimate right now is that approximately two-thirds of shares owned by all current investors would roll over into a private Tesla," Musk wrote, implying that a buyout might require between $20 billion and $30 billion in cash.

There are still several steps ahead before any take-private deal can close. Musk is holding talks both with other potential funders and with Tesla's existing large shareholders. Once those discussions are complete, Musk will bring a proposal to Tesla's board. If the board approves the deal, then it would go to a vote of shareholders. If shareholders also approve, then each shareholder would have to decide whether to take $420 per share in cash—or to accept shares in the new, private Tesla instead.

One question Musk's blog post doesn't address is whether smaller shareholders would have an opportunity to hold onto their shares—and if so, how it would pass muster under US securities laws. The Securities and Exchange Commission generally doesn't allow privately-held companies to have more than 2,000 shareholders, and experts are skeptical that Musk can find a way to legally accept investments from thousands of small investors in the new private company.

Musk could have avoided a lot of confusion by being more forthcoming in his initial tweet last Tuesday. If the tweet had said "Saudi Arabia's sovereign wealth fund has expressed interest in financing the deal but I'm exploring other options" instead of "funding secured," it would have prevented almost a week of rampant speculation—and possibly some class-action lawsuits.

Promoted Comments

I am not very well versed in securities law, but could Tesla just reclassify the current public shares rather than make them private? Is there such a thing as public, non-voting shares in a private company? And then any board members, majority shareholders (would have to be defined by Tesla?), and employees would get internal, private shares? But surely the private share holders would number over the limit...? I'm sure Musk will find a clever way to squeak by the regulations on private shareholders. But finding a way to keep current shareholders, especially small time shareholders like myself with <100 shares... tricky.

No you can't have public shares in a private company. If Tesla goes private it will be limited to 2,000 direct shareholders. You can have indirect shareholders through feeder funds but usually those are limited to qualified investors and somewhat of a hack and it has to be done at arms length to avoid SEC seeing this as just a formal extension of Tesla. Those with small stakes like you and me will simply be bought out (receive cash for shares) if the majority approved the plan to go private.

417 Reader Comments

I'm curious: are there people here who believe that we, as a civilization, aren't going to use up every single last drop of oil on the plant?

I do believe that, for one.

As the transition to different energy sources proceeds, it will at some point become irrelevant. How many people are hand-wringing over the state of the whale oil industry? Or think that they should invest in oxen for ploughing fields?

Not to say we won't cause an obscene amount of damage to our planet in the process, but the transition absolutely will happen.

Of course the oil rich Saudi’s would be excited to support technology that would make them much poorer.

They only reason that I could see them supporting this would be to suppress the tech.

Maybe they are looking at their reserves and deciding that they could make a killing in the electric car business when their output drops off a cliff in the next decade or so and sends gas prices above $10 a gallon.

Don’t they have the ability to limit production and send prices up at will as well? Controlling this developing tech would be very strategic for them.

Of course the oil rich Saudi’s would be excited to support technology that would make them much poorer.

They only reason that I could see them supporting this would be to suppress the tech.

That is certainly a possible motivation, but what Musk says (and which I think is consistent with what they've said elsewhere) is that they're looking to diversify away from oil. That seems smart both because their oil reserves won't last forever and because we might see rapid adoption of renewable energy sources push down oil prices in the next decade or two.

Planet Money did a couple episodes relating to the Saudi effort at diversifying their economy away from Oil. To say the least it's evidently something they are taking very seriously; especially after what happened in Russia and (more so) Venezuela upon the oil price collapse/sanctions.

Unless I'm reading Elon's blog post wrong, the Saudis didn't fully fund the buy out at all (only enough to buy out existing floating shares on the market) and didn't sign anything in regards to this.

Also, good luck convincing the millions of share holders to either accept the buy out at $420. I know a lot of people who bought for the super long term and isn't willing to sell at all for the foreseeable future.

It doesn't really matter what they want to do. If the article is correct 2/3rds of the shareholders are likely to go private (insiders and institutional investors). 2/3rds is > 50.1%. If the majority go private the rest who either are unwilling or unable to own a stake in a private company will simply be forced out.

Yeah it sucks but it doesn't really matter if they want to sell or not. A common way to force small shareholders out is to simply do a reverse stock split. Reverse split the stock 10,00:1. So at current prices anyone who has less than 10,000 shares (~$3.5M) receives cash for their shares and no longer is a shareholder as public traded companies don't support fractional share ownership.

I say this as a Tesla shareholder who likely would be forced out so I really don't want it to happen but I don't hold any illusions It could prevent it.

I am not very well versed in securities law, but could Tesla just reclassify the current public shares rather than make them private? Is there such a thing as public, non-voting shares in a private company? And then any board members, majority shareholders (would have to be defined by Tesla?), and employees would get internal, private shares? But surely the private share holders would number over the limit...? I'm sure Musk will find a clever way to squeak by the regulations on private shareholders. But finding a way to keep current shareholders, especially small time shareholders like myself with <100 shares... tricky.

However, it wouldn’t be right to share information about going private with just our largest investors without sharing the same information with all investors at the same time. As a result, it was clear to me that the right thing to do was announce my intentions publicly. To be clear, when I made the public announcement, just as with this blog post and all other discussions I have had on this topic, I am speaking for myself as a potential bidder for Tesla.

Quote:

I understood from him that no other decision makers were needed and that they were eager to proceed.

So this is why the funding was not secured, and why that difference matters. The Saudi negotiating position is now "We know you made a false statement of fact on Tesla's behalf to its investors, and we can pull out now if we want." Hard to think of a stronger position than that.

Musk's outcomes appear to be "a little bit screwed", if the Saudis buy in at $420 and the SEC slaps him on the wrist for the short-term pain this brouhaha has caused Tesla stockholders, or "ten gallons of screwed in a five gallon bucket", if the Saudis turn the thumbscrews and the sale happens at $400, or not at all.

Dude, it's his job to make sure shorters fail. He is supposed to cause them pain, by succeeding in raising the stock's value.

The KSA Wealth Fund saying they'd do it is funding as secured as anything ever is, the KSA is effectively a sole proprietorship

That's also blatantly illegal, I appreciate musk cultists finally admitting that their god king is basically a gangster and securities fraudster.

And no, saying my dad will pay for my car is not the same thing as my dad signing on the dotted line for the car purchase contract. Do you know what "secured" even means lmao

No, fool, you really don't get it. He is supposed to cause the shorters pain. He has a fiduciary duty to so. The SEC would get him if the other stockholders didn't first, if he consciously failed to so.

You saying the car will be paid for when your dad tells you he'll pay for it is not you lying. You hearing your dad say he'll do it is you securing the funding for that. That's reality.

This post just shows that you don't understand how financial markets work and what the regulations associated with them are. Many other posters have explained in this in other threads related to this topic so I won't repeat it but you really should educate yourself from some reputable financial sources and not Musk fan-boy sites.

I am not very well versed in securities law, but could Tesla just reclassify the current public shares rather than make them private? Is there such a thing as public, non-voting shares in a private company? And then any board members, majority shareholders (would have to be defined by Tesla?), and employees would get internal, private shares? But surely the private share holders would number over the limit...? I'm sure Musk will find a clever way to squeak by the regulations on private shareholders. But finding a way to keep current shareholders, especially small time shareholders like myself with <100 shares... tricky.

No you can't have public shares in a private company. If Tesla goes private it will be limited to 2,000 direct shareholders. You can have indirect shareholders through feeder funds but usually those are limited to qualified investors and somewhat of a hack and it has to be done at arms length to avoid SEC seeing this as just a formal extension of Tesla. Those with small stakes like you and me will simply be bought out (receive cash for shares) if the majority approved the plan to go private.

However, it wouldn’t be right to share information about going private with just our largest investors without sharing the same information with all investors at the same time. As a result, it was clear to me that the right thing to do was announce my intentions publicly. To be clear, when I made the public announcement, just as with this blog post and all other discussions I have had on this topic, I am speaking for myself as a potential bidder for Tesla.

Quote:

I understood from him that no other decision makers were needed and that they were eager to proceed.

"Am considering" -- first person singular. So he had the lawyers' advice from the start.

So this is why the funding was not secured, and why that difference matters. The Saudi negotiating position is now "We know you made a false statement of fact on Tesla's behalf to its investors, and we can pull out now if we want." Hard to think of a stronger position than that.

Musk's outcomes appear to be "a little bit screwed", if the Saudis buy in at $420 and the SEC slaps him on the wrist for the short-term pain this brouhaha has caused Tesla stockholders, or "ten gallons of screwed in a five gallon bucket", if the Saudis turn the thumbscrews and the sale happens at $400, or not at all.

Dude, it's his job to make sure shorters fail. He is supposed to cause them pain, by succeeding in raising the stock's value.

The KSA Wealth Fund saying they'd do it is funding as secured as anything ever is, the KSA is effectively a sole proprietorship

That's also blatantly illegal, I appreciate musk cultists finally admitting that their god king is basically a gangster and securities fraudster.

And no, saying my dad will pay for my car is not the same thing as my dad signing on the dotted line for the car purchase contract. Do you know what "secured" even means lmao

No, fool, you really don't get it. He is supposed to cause the shorters pain. He has a fiduciary duty to so. The SEC would get him if the other stockholders didn't first, if he consciously failed to so.

You saying the car will be paid for when your dad tells you he'll pay for it is not you lying. You hearing your dad say he'll do it is you securing the funding for that. That's reality.

Ok, I know that people on the internet pump up the importance of the fiduciary duty generally, but this is really out there. No, the fiduciary duty doesn't mean the CEO of a company has to engage in stock manipulation.

As the transition to different energy sources proceeds, it will at some point become irrelevant. How many people are hand-wringing over the state of the whale oil industry? Or think that they should invest in oxen for ploughing fields?

Not to say we won't cause an obscene amount of damage to our planet in the process, but the transition absolutely will happen.

Fair enough. My line of thinking goes, "petroleum products are used in sooooooo many things essential to modern life that we may not even, ever, find replacement products for some of those things."

On the other hand, as you pointed out, there are examples of us doing just that. Either way, I believe people will still be making mad money extracting natural resources from the earth, even long after you and I and everyone we know is driving vehicles that derive their energy from a grid powered solely by renewables.

Recently, after the Saudi fund bought almost 5% of Tesla stock through the public markets, they reached out to ask for another meeting. That meeting took place on July 31st. During the meeting, the Managing Director of the fund expressed regret that I had not moved forward previously on a going private transaction with them, and he strongly expressed his support for funding a going private transaction for Tesla at this time. I understood from him that no other decision makers were needed and that they were eager to proceed.

I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving. This is why I referred to “funding secured” in the August 7th announcement.

..........

Following the August 7th announcement, I have continued to communicate with the Managing Director of the Saudi fund. He has expressed support for proceeding subject to financial and other due diligence and their internal review process for obtaining approvals. He has also asked for additional details on how the company would be taken private, including any required percentages and any regulatory requirements.

Musk had not secured funding at the time of the tweet, and still today has not secured funding. The Saudis did not even, according to Musk, proceed until after the tweet.

The funding has to actually be there (or at least part of it) at the time the announcement is made. A signed and delivered deal with the money to back it up is "secured funding". There was no "secured funding" when Musk tweeted "secured funding", Musk factually lied.

In Musk's own word's he has admitted that his tweet about "secured funding" was not factually truthful at he time he made the tweet. All statements concerning finances of a company in any form, including "secured funding", are required by law to be factually true at the time the statement is made.

Unless I'm reading Elon's blog post wrong, the Saudis didn't fully fund the buy out at all (only enough to buy out existing floating shares on the market) and didn't sign anything in regards to this.

Also, good luck convincing the millions of share holders to either accept the buy out at $420. I know a lot of people who bought for the super long term and isn't willing to sell at all for the foreseeable future.

It doesn't really matter what they want to do. If the article is correct 2/3rds of the shareholders are likely to go private (insiders and institutional investors). 2/3rds is > 50.1%. If the majority go private the rest who either are unwilling or unable to own a stake in a private company will simply be forced out.

Yeah it sucks but it doesn't really matter if they want to sell or not. A common way to force small shareholders out is to simply do a reverse stock split. Reverse split the stock 100:1. So at current prices anyone who has less than 100 shares ($35K) is bought out as public traded companies don't support fractional share ownership.

I say this as a Tesla shareholder who likely would be forced out so I really don't want it to happen but I don't hold any illusions It could prevent it.

IIRC Teslas bylaws require a supermajority. The bylaw is there to make sure that Musk can't be forced to do anything until he's really lost it (though it also means he can more easily be blocked).

If Saudi Arabia starts calling the shots at Tesla, you might as well just kill the company. I hope Tesla puts some strong conditions at minimum. We are talking about SAUDI ARABIA.

The Saudi Arabia Sovereign wealth fund would not own >50% of the company. They will have a significant interest (~35%) but they aren't getting control of the company.

Also Saudi Arabia isn't stupid. They see the writing on the wall. They have hundreds of billions of dollars from the sale of oil but even if they tanked Tesla other companies would simply fill the demand for BEVs. Either way the world is moving towards a future which is less dependent on oil. So they can either throw $30B in the trash in an expensive and futile attempt hold back the ocean or they can own a chunk of a company which could have a significant share in future global auto sales.

On a related know for those who don't know in a private company any sale or purchase of stock has to be approved by the company so SA couldn't increase their ownership stake from 35% to 50.1% without the direct permission of Tesla and there is a snowball's chance in hell of that happening given how much of a control freak Elon is.

I am not worried about Saudi Arabia destroying Tesla. But a good part of the goodwill from customers towards Tesla is the feeling of being on the good side. I wonder if people will keep sustaining the company once they realize SA is a major shareholder.

you've got to also believe that we're going to reach the tail-end distribution for oil use, and stay there until...well, until there's literally nothing else to pull out of the earth. And those that have that last drop are going to charge a pretty penny.

No I don't, because it isn't true. There are alternate sources of hydrocarbons, such as biologicals (algae, soybeans, etc.) and direct manufacture from water and carbon sources. As petroleum and natural gas sources become scarce and hard to extract, their prices will rise above these alternate sources, and industry will switch.

For a current close example, US use of coal for electricity has dropped from 50 to 29% since 2007, and a half dozen more coal plants are due to be retired in the coming year. The US has very large coal reserves, but it is likely that most of it will stay in the ground. The simple reason is other power sources are now considerably cheaper. The only reason coal isn't entirely dead yet is it takes time and a lot of money to replace half the country's power plants.

Don't, just don't. These people just literally crucified somebody just to make a political statement. Don't do business with them, don't even talk to them. Put them in a corner, and make them think about what they did. Forever if needed.

I am not worried about Saudi Arabia destroying Tesla. But a good part of the goodwill from customers towards Tesla is the feeling of being on the good side. I wonder if people will keep sustaining the company once they realize SA is a major shareholder.

Unless I'm reading Elon's blog post wrong, the Saudis didn't fully fund the buy out at all (only enough to buy out existing floating shares on the market) and didn't sign anything in regards to this.

Also, good luck convincing the millions of share holders to either accept the buy out at $420. I know a lot of people who bought for the super long term and isn't willing to sell at all for the foreseeable future.

It doesn't really matter what they want to do. If the article is correct 2/3rds of the shareholders are likely to go private (insiders and institutional investors). 2/3rds is > 50.1%. If the majority go private the rest who either are unwilling or unable to own a stake in a private company will simply be forced out.

Yeah it sucks but it doesn't really matter if they want to sell or not. A common way to force small shareholders out is to simply do a reverse stock split. Reverse split the stock 100:1. So at current prices anyone who has less than 100 shares ($35K) is bought out as public traded companies don't support fractional share ownership.

I say this as a Tesla shareholder who likely would be forced out so I really don't want it to happen but I don't hold any illusions It could prevent it.

IIRC Teslas bylaws require a supermajority. The bylaw is there to make sure that Musk can't be forced to do anything until he's really lost it (though it also means he can more easily be blocked).

Your right it does not sure what activities it covers though. Would it cover reverse stock split for example. If not that could be used to legally remove smaller shareholders until those willing and able to support going private make up the 89.5% required by the supermajority clause.

you've got to also believe that we're going to reach the tail-end distribution for oil use, and stay there until...well, until there's literally nothing else to pull out of the earth. And those that have that last drop are going to charge a pretty penny.

No I don't, because it isn't true. There are alternate sources of hydrocarbons, such as biologicals (algae, soybeans, etc.) and direct manufacture from water and carbon sources. As petroleum and natural gas sources become scarce and hard to extract, their prices will rise above these alternate sources, and industry will switch.

For a current close example, US use of coal for electricity has dropped from 50 to 29% since 2007, and a half dozen more coal plants are due to be retired in the coming year. The US has very large coal reserves, but it is likely that most of it will stay in the ground. The simple reason is other power sources are now considerably cheaper. The only reason coal isn't entirely dead yet is it takes time and a lot of money to replace half the country's power plants.

Well if we stop burning oil in the near future we likely have 100,000 years of petroleum left for things like plastics, lubricants, and other non-burney usages for petroleum. Honestly I really doubt petroleum production ever goes to zero barrels per day. It likely will decline a lot but still exist. I don't really care if plastics are made from oil as long as we aren't burning oil by the gigaton.

It'll be interesting to see if this deal goes through. Yes, the Saudis like Tesla, but I wonder if they like it at $420 a share - and if they do, it's a question of how much they're willing to put up. I can't see many institutional investors doing anything but taking a buyout at that price, the reward/risk ratio is simply too skewed.

If Tesla needs additional funding to go private, will they find it? That's the question, and Musk "exploring" other options for funding - for diversity's sake, don't cha know - is a pretty good indicator of the actual state of affairs.

Remember that Tesla has no secret-sauce, and has generally demonstrated a breathtaking incompetence in trying to create one via advanced manufacturing. They face open competition in the EV market, which I believe will grow more slowly than many think - and by their cautious market response, the big automakers seem to concur.

Don't, just don't. These people just literally crucified somebody just to make a political statement. Don't do business with them, don't even talk to them. Put them in a corner, and make them think about what they did. Forever if needed.

Yeah problem with that thinking. The world is a big place and the economy is now global. Yeah let’s not do business with them for that valid reason and give global competitors a huge advantage. You don’t think Russia and others wouldn’t quickly pick up more business with them? Your idea only works if EVERY other nation does the same thing and that ain’t happening.

Anyone else get the impression that Elon Musk has been on the edge of some kind of breakdown these last few months?

Thank Mars for Shotwell's steady hand.

Yeah, I love that bit where 'Musk fired his personal assistant when she went on vacation and he discovered he didn't really need an assistant' when everything the man does desperately screams 'I need an assistant'.

Well if we stop burning oil in the near future we likely have 100,000 years of petroleum left for things like plastics. Honestly I really doubt petroleum production ever goes to 0.0000000 barrels per day. It likely will decline a lot but I don't really care if plastics are made from oil as long as we aren't burning oil by the gigaton.

As a shareholder and Model 3 owner who thinks Tesla would be better off if they could successfully go private for at least the next 5 years or so, I'm not excited about the prospect of SA as the largest shareholder. If Musk can get a few other investors on board to limit SA to 20% or so I'd probably be on board, but with just them I'd rather it not go through (not that my few shares matter one whit to determining if the deal goes through). Will definitely be interesting to watch the process though.

I'm a bit squishy on securities law, but this sounds like confirmation that funding is NOT yet secured. He's got a very interested buyer, that has assured him that they would buy. But it sounds like they don't even know how much of Tesla they would be buying. So if there's no legal agreement in place, his "funding secured" tweet would most likely represent a false statement. Anyone with knowledge on this issue care to chime in?

It depends. They have an upper bound on how much the sovereign wealth fund would need to purchase. Lets say that is $40B although it could be as little as $20B. If the fund is committed to an investment that equals or exceeds the upper threshold then I think it probably would be "funding secured". Given that SA has expressed interest in buying the entire company in the past it would seem at least plausible they are committed to covering the shares of any investors unable or unwilling to go private.

To know for sure one way or another we would need access to the private details between Tesla and the fund.

Funding is not “secured” until you have a fully executed funding agreement and all conditions precedent have been satisfied. Even then there are likely to be emergency drawstops that could prevent closing (insolvency, government expropriation, illegality event etc).

Quote:

"I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed," Musk said.

From that quote and other reporting on the topic it sounds to me, as an acquisition finance lawyer, that at best he’s got a non-binding term sheet or letter of intent; at worst a verbal agreement and handshake. This might seem like a petty thing to argue about but certainty of funds is a huge deal in acquisition finance. You have to be very careful what you say about it in the context of a listed company. I’ve seen plenty of deals fall apart between term sheet and execution.

The Saudis aren't going to kill Tesla thinking they can put the EV genie back in the bottle. The only country that thinks they can "turn back time" on things that don't work for them economically is the US. They're getting ahead of a polar shift in the global economy that has been overdue for twenty years, and we're here wringing our hands that they'll do the short-sighted bull**** that caused us to lose our WW2 head start in the first place.

Look, most other countries on earth are planning past the end of the next fiscal quarter. It's a no-brainer to buy into the industry the whole world is soon to desperately need.

From that quote and other reporting on the topic it sounds to me, as an acquisition finance lawyer, that at best he’s got a non-binding term sheet or letter of intent; at worst a verbal agreement and handshake. This might seem like a petty thing to argue about but certainty of funds is a huge deal in acquisition finance. You have to be very careful what you say about it in the context of a listed company. I’ve seen plenty of deals fall apart between term sheet and execution.

Imprecision of language in a tens-of-billions-of-dollars deal would keep me up at night. It seems as though it did not have the same effect on Musk.